Memory chip mania isn’t going away, with Dan Kim

**Soumaya Keynes** (0:00)
CHIPS are one of those products that everyone cares about. Consumers care about them because they're in every electronic device we own. Tech companies care about them because they are crucial to the AI buildout. Politicians and economists care about them because they are central to geoeconomic tensions between the US and China. In the past, drama in CHIPS has been focused on logic chips. Those are the ones that process data. But recently, another, less glamorous corner of the CHIP market has been going crazy. Memory chips are red hot right now. AI data centers are hoovering them up, pushing up prices and crowding out customers elsewhere. It is a wild time to be in the CHIPS business, and today I'm going to try to make sense of it.
What are the causes and consequences of this mayhem? And could China play a role in bringing this madcap market into balance?
This is The Economics Show with Soumaya Keynes. I'm joined today by Dan Kim. Dan is the Chief Strategy Officer at Semiconductor Analysis Firm Tech Insights, and was previously the Chief Economist at the CHIPS Program Office at the US Department of Commerce.
Dan, welcome to the show.

**Dan Kim** (1:23)
Thank you for having me.

**Soumaya Keynes** (1:25)
Okay, so first question. On a scale of 1 to 10, how crazy is the memory chip market right now?

**Dan Kim** (1:32)
Right now, it's an 8
Next quarter, it'll be a 9 And the quarter after that, it'll be a 10 It'll stay at a 10 until the end of 2027, at least. And then we'll see how long it stays at 10 But it'll be a 10 until at least next year.

**Soumaya Keynes** (1:47)
Okay, that is remarkably precise, which I appreciate. Could you put some slightly more serious numbers to that craziness? What are prices doing right now?

**Dan Kim** (1:56)
Well, on a year-to-year basis, the prices for DRAM, which is one specific kind of memory that is being used for data centers, mobile phones, pretty much everywhere there's electronics. From last year to this year, we're anticipating a over 200 percent price and increase of DRAM. That is historically unprecedented. You do see swings in price cycles in the DRAM industry and the NAND industry, which is the other part of memory. But this amount of price swing is historic.
We actually don't quite know when this upcycle will end, because there is no new supply coming online in significant volume until at least 2028 Because of AI demand, demand is increasing but supply is not increasing. The only thing that could adjust right now is pricing, and that's what's happening.

**Soumaya Keynes** (2:48)
Okay, so pricing is high and presumably there are customers elsewhere who are just not able to get the chips that they want.

**Dan Kim** (2:55)
Yeah, so, you know, interesting thing about the memory market is that because the goods are standardized, it acts like a commodity market. There's actually a spot price on a daily basis for DRAM, for example. Now, most of the chips are bought and sold on a contract basis, but there is a spot market as well, so you can track what the prices are doing. So, in a market like this, you would presume that if you're willing to pay the price, you could get the good, but we're heading into a territory in which the price signals are actually not working as well, meaning the price signals are so high that even when you're willing to pay the price, you might actually get a reply back from the manufacturer saying, we could only give you X percent of what you're looking for, even if you're willing to pay the price we're quoting you.
We've been hearing that from not only the high end of the market, the data center, AI companies, but we've been hearing that more and more from the lower end of the market, meaning the legacy demanders, automotives, medical device manufacturers, and others, that this is an issue across the board where the prices are going up. But because there's no new supply coming online and demand is increasing, there is now an increasing allocation happening in the market.

**Soumaya Keynes** (4:12)
Do you have a rough sense of what share of these CHIPS that are actually being supplied are already being sown up in contracts and what share are being traded on the spot market?

**Dan Kim** (4:23)
Yeah, and so effectively there is no supply out there that hasn't already been spoken for. So practically most of the supply has been sold out. This has been the case for high bandwidth memory, which is the specific type of DRAM that is paired with AI accelerators to make AI training CHIPS.